By Andria Cheng

At J.C. Penney Co.’s
/quotes/zigman/237947/quotes/nls/jcpJCP Manhattan store on Sunday, a decent flow of traffic was observed in the apparel and shoe sections, but, when it came to the company’s much-touted new home department, unveiled in early June and featuring some of the biggest names in furnishings, shoppers were all but absent.

As Penney’s returning chief executive, Mike Ullman, seeks to reverse the company’s troubled fortunes, the upscale home department, re-engineered by ousted CEO Ron Johnson, may turn out to be a significant burden.

JCP.com

Michael Graves shop at Penney.

On Wednesday, Credit Suisse analyst Michael Exstein cut his second- and third-quarter profit estimates on J.C. Penney after store visits outside the New York area over the past week suggested that the upmarket home section — featuring such noted designers and brands as Jonathan Adler, Michael Graves and Sir Terence Conran — may add to the challenges facing Penney instead of serving, as planned under Johnson, as “a catalyst for improved traffic and merchandise perception.”

The department (dubbed For the Home on the retailer’s website), featuring shops within stores dedicated to the likes of home-life guru Martha Stewart and architect Graves, has of late been home to price cuts of 30% and more on most items, Exstein observed. “The net result is that we believe gross margins are likely to be lower than our original expectations for the second quarter and that this could spill over to the third quarter as well,” he said, adding that customer traffic at present seems to be concentrated in apparel clearance areas. “Aggressive markdowns of merchandise that are not appropriate to the core JCP customer makes much sense to us. The repricing of the new home product is a necessary step to test realistic customer appetite.”

On top of an apparent difficulty in matching up customers, products and pricing, the individual in-store-shop model could make it hard for Penney to reallocate sales-floor space to more traditional or bulkier home goods, the analyst said.

A J.C. Penney spokesman said the company doesn’t comment on performance beyond its quarterly earnings report.

Penney shares fell 3.3% in Wednesday’s session and are down 16% this year.

The home section is a critical piece of Penney’s turnaround. Sales in the department fell about $1 billion last year to 12% of Penney’s approximately $13 billion in sales, down from 15% of a total $17.3 billion before Johnson’s overhaul last year. As a big part of Penney’s online assortment, the home area also contributed to the retailer’s 33% slide in online sales last year.

While praise has been showered on the merchandise styles, the big question has been whether the new offerings will appeal to Penney’s core moderate-income, price-conscious shopper.

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About Behind the Storefront

Behind the Storefront is a blog about all things retail. It’s aimed at investors, shoppers and anyone else with a passion for learning about what drives consumer behavior. Hosted by Andria Cheng, Behind the Storefront will cover the business, brands and shopping behavior that’s behind some of the biggest companies, and largest employers, in the world. You can reach Andria at Acheng@marketwatch.com.